The FDIC insures deposits of up to $250,000, but it didn’t help Silicon Valley Bank avoid collapse. Part of the reason is that many depositors had well more than the insurance deposit limit amount invested at the bank. They rushed to move funds as perception of risk increased. That meant deposit insurance didn’t help much to prevent a bank run.
However, the unique way that Silicon Valley Bank operated may have introduced risks, too, as did the recent selloff in government bonds as the Fed raised rates aggressively, hurting the bank’s investments.
How Deposit Insurance Works
Depositors at U.S. banks typically have up to $250,000 guaranteed by the FDIC. This means that if a bank should ever fail, then depositors will get back that amount as soon as possible from the FDIC. Its goal is to deliver the funds within two working days. In the case of Silicon Valley Bank, insured deposit funds were expected to be available on Monday, March 13.
Now, that doesn’t mean the remaining deposits will be completely lost, but it depends on the state of the bank’s balance sheet. Historically, amounts more than $250,000 have received the majority of their funds back, but on a slower timescale as the bank is wound down.
Also, the $250,000 insurance limit can be effectively increased